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Wendy Reed
Wendy Reed, Enrolled Agent
Category: Tax
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Experience:  15+ years tax preparation and tax advice.
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My father (a US citizen) inherited property in Romania from

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My father (a US citizen) inherited property in Romania from his father (a Romanian citizen) when his father died in 1965. However, the property was confiscated with the advent of communism in 1947 and it belonged to the state. My father started the legal process of recovering his property a few years ago. He now owns the property and is in the process of selling it. How can he transfer the proceeds of the sale back to the US? Would he owe inheritance, or capital gains, tax on the property? Thank you.
Submitted: 4 years ago.
Category: Tax
Expert:  Wendy Reed replied 4 years ago.

Thank you for giving me the opportunity to assist you. I will give the best answer that I can with the information provided.

 

Hello JA customer.

What an interesting situation! Although I cannot advise you on methods of transferring money internationally, I can help you with tax information. Your father will not owe inheritance tax, as there is no US federal inheritance tax. However, since your father is the legal owner of the property, there most likely would be capital gain--since all worldwide income is subject to tax for US citizens.

 

The capital gain (or possibly even loss depending on circumstance) would be calculated as the sale price minus selling expenses minus basis. The basis of inherited property is generally what the property was worth on the date of decedent's death. However, because your father most likely spent money on recovering the property to regain or re-establish ownership, these costs could be arguably added to the basis. Also, if any capital improvements were done over the years the cost of such could be added to basis. If the property was rented since your father inherited it, there could possibly be more complicated calculations due to depreciation or consideration as rental/business property.

 

If he is subject to any Romanian income tax on the sale, then he may possibly be able to claim a foreign tax deduction or credit on his US return.

 

Please let me know if you need additional assistance.

Customer: replied 4 years ago.
Thank you Wendy. Your answer seems logical and it's along the lines of what I was thinking. The problem here is how do you value a property back to 1965, when it was (illegally) owned by the state. What methods would be acceptable to the IRS for determining the basis?
Expert:  Wendy Reed replied 4 years ago.

Value would be considered "fair market value"---and a good example would be what other similar homes were selling for at that time. I don't know how you would find this out, unless you had access to Romania newspapers from that time, or if any Romanian realtors could assist you with this. This is an example of an article that I have referred others to considering historical appraisal...although you may have a little tougher time due to the foreign country factor:

http://ezinearticles.com/?Historical-or-Retro-Active-Real-Estate-Appraisal-Valuation&id=751465

Customer: replied 4 years ago.
Thanks again, Wendy. One more/last question. Should this property have been declared on prior tax returns? If yes, then how do you go about declaring it now?
Expert:  Wendy Reed replied 4 years ago.

Only if it was used to produce income, such as a rental. Or, if he was paying property tax on it, the property taxes could have been deducted--even as personal property.

 

If used as a rental, returns would need to be amended from first conversion to a rental. Theoretically, a lot of times rental properties lose money, especially when they are not yet fully depreciated, so only years in which there was a net profit would incur additional liability--however there are also passive carry over loss, etc. If this situation applies to your father, then he needs a professional to assist.

 

If the home was not used as a rental, and property taxes were paid but never deducted, amended returns for a refund could be done for the last three years. Tax year 2007 and forward are open years to amend for a refund.

Wendy Reed, Enrolled Agent
Category: Tax
Satisfied Customers: 3346
Experience: 15+ years tax preparation and tax advice.
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Wendy Reed
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